Related Areas of Research

Introduction

The single most important document produced by a state government each year, and one that receives close public scrutiny, is the state budget. It is both a financial plan for the state and a description of the policies the state intends to pursue in the future.

Often the first question asked by budget decision-makers and budget watchers is whether the state is increasing or cutting back its commitment to a particular area of the budget, such as health care for poor children, property tax reductions for senior citizens, or economic development assistance to businesses. However, the answers to such questions cannot be determined simply by comparing the proposed funding for the coming year to the amount that is being spent in the current year. A host of factors affect the amount of funding that would be needed just to maintain a program at a constant level, without making any policy changes. Inflation increases the cost of buying everything from vehicles to medical tests, for example; public employee salaries increase, and economic and demographic changes affect the number of people eligible for particular programs.

Thus, it is important to know the cost of maintaining programs at their existing levels in the coming year (or biennium) — a cost known as a “current services baseline” — and to distinguish that cost from the cost of any proposed policy changes embedded in the budget.

Separating Budget Rhetoric from Reality

Current services baselines make it more difficult for policymakers to cut programs in real terms while arguing that the programs have not been cut because their nominal funding has remained flat or even increased.

For example, in her 2006 State of the State Address, Governor Jodi Rell of Connecticut emphasized the importance of education and stated that “For our Education Cost Sharing grant [the state’s largest school aid program], I maintain our commitment from last year …” The Current Services baseline included in Connecticut’s budget, however, showed that the proposed budget of $1,594.4 million for Education Cost Sharing grants — the same amount of funding as the prior year — was $71.6 million less than the amount that the state’s budget office projected would be needed to maintain current services, given inflation and a projected increase in students. Funding per student would have declined between FY2006 and FY2007 under the governor’s proposal before even taking inflation into account.

Similarly in his proposed FY2007 budget, the Mayor of the District of Columbia included a number of items that he identified as “Opportunity Enhancements”. These included $3.3 million to “expand contractual bed space at the D.C. Jail” and $5.1 million for child care. The enhancement for the D.C. jail was only enough funding to maintain space at the 2006 level. The child care funding was less than the amount needed to restore money slated to be cut from the program so fewer, rather than more, children would be served. The city’s current services baseline budget made it much easier for analysts to determine the real impact of these proposals.

Since the mid-seventies, the federal government has included information on the cost of maintaining current services in the President’s annual budget proposal, but most states do not follow this practice. This report explains why including a current services baseline would improve the state budget process, summarizes states’ current practices in this area, and suggests ways that states without current services budgets could design them.